Former Administrators' Standing to Increase Remuneration Clarified by High Court

Citation: [2024] EWHC 422 (Ch)
Judgment on

Introduction

In the case of Jeremy Charles Frost & Anor v The Good Box Co Labs Limited & Ors, the High Court of Justice was tasked with the resolution of a dispute concerning the standing of former administrators to apply for an increase in remuneration post their tenure, following the approval of a restructuring plan under the Insolvency Act 1986 and the Insolvency (England and Wales) Rules 2016 (IR2016). This article analyses the judgment handed down by HH Judge Klein, focusing on the legal principles applied and the court’s interpretation of the relevant statutory provisions.

Key Facts

The applicants, Jeremy Charles Frost & Anor, were the Joint Administrators of The Good Box Co Labs Ltd (“the company”). Their appointment ceased effect upon the sanctioning of a restructuring plan by HH Judge Davis-White KC. The administration process and the settling of the restructuring plan were contentious, leading to a dispute over the administrators’ remuneration. The creditors approved a resolution determining the administrators’ remuneration on a time-cost basis with an approved payment on account of £235,000 plus VAT. This led to the Applicants submitting a claim under the plan’s adjudication process for additional fees, which the plan administrators did not admit.

The dispute led to the Applicants applying for an order to increase their remuneration under rules 18.24 and 18.28 of IR2016—despite not being the current office-holders—an action contested by the Respondents.

The court’s analysis revolved around several key legal principles:

  1. Legislation Interpretation: Particularly, the understanding of the terms ‘office-holder’, ‘administrator’, and ‘former administrator’ under the IR2016 and the Insolvency Act 1986.

  2. Purpose of Legislation: Clarity was sought over the objectives of Part 18, Chapter 4 of the IR2016 and the circumstances under which an office-holder can apply to increase their remuneration.

  3. Principals of Standing: Consideration of who has the standing to make an application under specific insolvency rules was pivotal. This included a discussion of the ‘sufficient interest’ test, which hinges on whether the outcome of an application will directly affect the applicant’s rights or interests.

  4. Purposive Construction: The notion that insolvency legislation should be interpreted purposively to effectuate its intended outcomes, not just following the literal meaning of the words.

  5. Historical Context: The evaluation of past cases where the courts have ruled on applications for office-holder remuneration, including analogous applications under the predecessor IR1986.

Outcomes

The court determined the following key outcomes:

  1. Standing to Apply: Former administrators do have standing to make a rule 18.28 application; however, in the context of the application made by the Applicants in this case, they do not consider the amount of remuneration fixed as insufficient, nor are they seeking an increase or change in basis as required under IR2016. Therefore, the application does not fall within the ambit of a rule 18.28 application.

  2. Remuneration Basis: The court concluded that if the administrators’ remuneration has been fixed on a time-cost basis (as claimed by the Applicants), they cannot apply for an increase under rule 18.28 as they are not pursuing an increase in rate or overall amount, nor a change in basis.

  3. Relevance of Precedents: The court clarified the applicability of prior case law, such as Brilliant Independent Media Specialists Ltd, emphasizing that earlier determinations were context-specific and not directly applicable to the current case due to material differences.

Conclusion

HH Judge Klein’s judgment clarifies the scope and limitations for former administrators seeking to challenge or increase their remuneration through the court. It elucidates that while there is provision for former office-holders to apply for an increase in remuneration, the substance of their application must align with the provisions of IR2016, specifically seeking an increase in rate, amount, or a change in basis. Judge Klein’s judgment reaffirmed a purposive approach to statutory interpretation in insolvency matters, ensuring that former administrators’ rights and the intended effect of statutory provisions are considered. This judgment will assist legal professionals in understanding the standing requirements under insolvency legislation and the criteria for application under the specific rules relating to the remuneration of insolvency practitioners.

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